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Opinion

CAS Needs to Restructure Exams 3 and 4

by Stephen P. D'Arcy and Richard W. Gorvett

At its November 2001 meeting, the CAS Board of Directors passed a resolution charging the admissions committees and the Executive Council with designing and preparing Exams 3 and 4 that are appropriate for casualty actuaries. A task force has been assembled to implement this charge. The board resolution stipulated that the SOA would be invited to join in whatever changes are implemented, but that the CAS is prepared to develop independent exams if necessary. Although this is simply the latest step in the continuing process of revising these exams, for many CAS members the announcement of this action was their first notice that changes in these exams were planned. This article attempts to explain, from the authors' point of view, the problems with Exams 3 and 4 and the process that has led to this decision, so that all CAS members can understand the situation that has led to this resolution.

Background
As faculty trying to determine how to prepare actuarial students for the new exams, we recognized some of the problems inherent in Exams 3 and 4 as soon as the 2000 syllabus readings were announced and sample questions posted on the CAS Web Site. Essentially, a great deal of material on "modeling" was split into two new exams: Exam 3-Actuarial Models, and Exam 4-Actuarial Modeling. This material included life contingencies, survival analysis, loss modeling, stochastic processes, simulation, credibility, regression, forecasting, and time series. One problem with the revised exams was that several texts were on the reading lists for both exams in a manner that would make it hard to prepare students for an individual exam. Since a single university class would normally cover all of the relevant material in a particular text, it was immediately apparent that students would, to some extent, be preparing for Exams 3 and 4 together, potentially slowing exam progress. In addition, one of the readings announced in the 2000 Syllabus was not yet available.

A second problem was that many of the texts were not suited for self-study. These books appeared to be more appropriate for a classroom setting where a knowledgeable professor could explain the material.

Finally, the sample exams posted on the Web site generated concern. Many of the posted questions were not relevant to casualty actuarial work. While it is fine to have high standards for passing actuarial exams, there is no sense testing material rigorously if it is not likely to be relevant to the needs of future casualty actuaries.

Thus, even before the first joint offerings of Exams 3 and 4, many observers raised questions about the appropriateness of the material and the content. These questions were raised by academics, others involved in actuarial education, and the students themselves, the groups most directly affected by these changes.

CAS Responses
In recognition of these concerns, three months before the first offering of the new exams the CAS Board appointed a task force to evaluate Exams 3 and 4. The purpose of this task force was to review the exams and make any recommendations regarding necessary changes as soon as possible. In October 2000, the task force submitted its report to the board, which is available on the Exams Section of the CAS Web Site under "Information and Discussion." The report's primary findings included the following:

  1. Action on these exams needed to be taken.
  2. A significant number of the learning objectives were beyond what casualty actuaries need to know, particularly on Exam 3.
  3. The amount of material on the exams needed to be reduced, particularly on Exam 3.
  4. Many of the readings needed to be replaced or revised. More emphasis needed to be placed on the practical rather than the theoretical.
  5. The exams appeared to be particularly difficult for those currently working, rather than those in college.

This task force's work led to several beneficial changes on these joint exams. Stuart Klugman has graciously written a study note to replace the Chapter 2 material of his textbook that is on Exam 3. He is currently working on an Exam 4 Study Note.

Another change inspired by the work of this task force is that the readings on credibility for Exam 4 were changed to include readings from CAS sources, including material by Stephen Philbrick and by Howard Mahler and Curtis Gary Dean. Also, the amount of reading material and the number of learning objectives were reduced. In addition to these changes, the members of the Examination Committee have devoted substantial time and effort to improve the quality of the questions on each exam.

Despite these changes, problems remain, such as distributing topics between the exams and overemphasizing life contingencies. While some improvements were made, the CAS Board concluded that the improvements did not sufficiently resolve all the issues with these exams and that further changes were necessary.

In November 2000, the CAS Board appointed another task force to develop a contingency plan to revise Exams 3 and 4 in the event that current efforts were unsuccessful. The Exams 3 and 4 Contingency Plan Task Force agreed that the amount of material on the two exams should be restructured and reduced, and proposed two alternatives for accomplishing this task. One proposal continued to have two exams, but proposed covering modeling, stochastic processes, and simulation on the first exam, and life contingencies, credibility, regression, forecasting, and time series on the second exam. It was expected that the first exam could be offered jointly with the SOA, but that the second exam would be offered independently. The other proposal was to replace Exams 3 and 4 with a single exam covering modeling, credibility, and life contingencies, with the other material (simulation, stochastic processes, regression, forecasting, and time series) moved to other exams.

While reviewing the task force reports, the board paid attention to the pass ratios on the exams. The figures from the first three exam offerings are summarized below.

EXAM 3
Date CAS Workers All Workers Students Total
May 2000 15% 29% 44% 32%
Nov 2000 20% 29% 54% 36%
May 2001 33% 38% 60% 43%
EXAM 4
Date CAS Workers All Workers Students Total
May 2000 23% 27% 69% 34%
Nov 2000 30% 33% 59% 37%
May 2001 35% 38% 54% 41%

In order to understand the reasons for the relatively low pass ratios for CAS workers, we reviewed the actual exams offered in November 2000. On Exam 4, there were four questions (17, 37, 39 and 44) that fewer than 20 percent of the candidates answered correctly—less than the percentage that random guessing would produce, given that these are multiple choice exams with only five possible responses. There were another nine questions (9,13,14, 19, 20, 24, 28, 30 and 33) that CAS workers answered correctly much less often than non-CAS candidates. Not surprisingly, seven of these questions (all but 13 and 19) were life contingencies questions.

These considerations suggest that CAS candidates are at a disadvantage relative to life candidates on Exam 3, due to the extensive joint coverage of life contingencies material, and that working candidates are at a disadvantage relative to students on both Exams 3 and 4, due to the nature of the readings on these exams. Thus, it would appear to make sense to restructure the exams to avoid concentrating on material that favors one specialty over another on a joint exam, and to make the exams as relevant as possible to the casualty actuarial profession.

At its May 2001 meeting, the CAS Board directed the admissions committees to seek creative solutions to reduce the level of life contingencies material tested for CAS candidates. The board also adopted a motion that stated it had reviewed the report of the contingency plan task force and, as a general direction for change, expressed a preference for the two-exam option. At a later board meeting, the admissions committees indicated that they had not been able to come up with an acceptable short-term solution to the life contingencies issue. Also at a later board meeting, CAS Vice President-Admissions Mary Frances Miller reported that the SOA was reluctant to restructure the joint exams now, since it was starting to work toward a major restructuring proposed for 2005. Thus, if the CAS does not act independently to restructure Exams 3 and 4, the only changes likely to occur over the next four years are to replace some of the readings with new material and continue to improve the quality of the questions incrementally. The CAS will still have the problem of overemphasizing life contingencies and covering closely related material on modeling over two exams. We are concerned that joint exams will continue to ask questions that are more theoretical than practical.

Issues and Concerns
A key concern is the relevance of these exams to the casualty actuarial profession. Interestingly, one problem that the Examination Committee is now experiencing is difficulty in obtaining CAS volunteers to work on Exam 4. When asked to participate, many members respond that they either are not familiar with this material, or are not applying it in their work. This suggests that, from a casualty actuarial perspective, we might be testing inappropriate material on this exam. Another issue is the degree to which life contingencies are currently being tested. It is important to recall a prior experiment, approximately twenty years ago, with jointly testing life contingencies material. After only a few years, this process was changed and, up until the recent changes in 2000, this material was offered separately between the Societies, via SOA Exam 150 and CAS Exams 4 and 4A. Now, we are again confronting the basic issue that casualty actuaries simply need to know less about life contingencies than do life actuaries, are less familiar with life notation, and will devote less effort to learning this material.

Another concern about the nature of the reading materials on these exams is the difficulty of self-study. The CAS draws members from a wide array of colleges and majors. A recent survey indicated that only about one in six CAS members had been enrolled in an actuarial science program in college. This diversity represents an important source of strength for the CAS. However, the current exam structure, with its emphasis on material best covered in a classroom setting, threatens this diversity.

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There was relatively little membership input with respect to the changes that led to the current jointly sponsored Exam 3 and 4 structure. The current debate emerging among CAS members regarding the present status of Exams 3 and 4 is a healthy process, and should help facilitate the board's making appropriate decisions in this area. Our hope is that this article will further inspire a constructive dialogue with regard to training future casualty actuaries. For those interested, the current syllabus and exams can be viewed on the CAS Web Site in the "Exams" Section.

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D'Arcy and Gorvett served on the second and first task forces, respectively.